It’s one of the most strongly recommended pieces of advice when it comes to early retirement strategies: You need to pay off your mortgage as soon as possible and become debt-free.

While the benefits of no longer having to pay for your house are obvious, this advice can be somewhat conflicting …

If I want to retire, shouldn’t I be focusing on saving instead of paying down my mortgage?

Since I’m not made of money, where should I prioritize my finances?

The trick behind the magic of paying off your mortgage early is in knowing how it can affect your overall retirement goals, and how many years it can knock off your timeline.

In this post, we’ll talk about how this strategy can be useful and just how much sooner you may be able to retire because of it.

The Relationship Between Your Expenses and Savings

Within any successful retirement plan, your goal should always be to find an alternative way (other than working full time) to replace your living expenses.

Generally this is accomplished by saving up a large sum of money (i.e. your nest egg) and living off of small fraction of it.  Most experts recommend that you pull out no more than approximately 4 percent of your savings each year to use for covering your expenses.

Therefore, there exists the following relationship: Your nest egg should be approximately 25x your anticipated retirement expenses.

Another way you could think of this conversion is to say that for every $1,000 of income you’ll need, it will require you to have saved up $25,000 in your nest egg.

Less Expense Means a Lower Nest Egg

Keeping this 25x rule of thumb in mind and working backwards, it stands to reason that one certain way you could lower your retirement savings goal would be to find a way to cut back on your expenses.

There are many possible things and activities you could cut out.  But for most people, the biggest fish to fry would be eliminating their largest monthly expense: Their mortgage.

To illustrate this point, let’s see how much money you could potentially save by no longer having to make monthly house payments.

For starters, we’ll say you’ve got an average mortgage of roughly $1,000 per month.  By paying it off early, you could wipe $12,000 of annual expenses from your budget.  Using our 25x rule, this works out to $300,000 less you will need to save up in your nest egg!

Now let’s put this all together from a broader perspective.  In U.S., the median income is roughly around $50,000 (give or take).  This means that if we assume you’ll need 80% of your current income to cover your anticipated retirement expenses ($40,000), then your target nest egg amount would be approximately $1 million.

However by paying off your mortgage early with the numbers were used above, this would decrease your nest egg target by 30% to $700,000.

Depending on how much money you are saving per year and what type of investments you have, that could potentially knock years off of your retirement goal timeline.

How Can I Payoff My Mortgage Earlier?

While paying off your mortgage early may seem like a huge task, don’t be overwhelmed.  This task can really be accomplished in smaller chunks than you think.

The key is to add small, regular payments to the principal portion of your mortgage payments.  We’re not talking very much … A few bucks here and there.

Using a popular online mortgage calculator, we can see that amounts as low as $50 per month extra towards the principal will shave 3.5 years off of a $150,000 mortgage with a 4.0% fixed APR.  $100 extra per month will knock out 6 years, and so on.

Saving an extra $50 or $100 is something that can be accomplished by exerting some discipline and making smarter purchases.  Strategies like not going out to eat so much, staying away from the mall, and challenging your bills can all be easy, effective.  Or you can find more useful money-saving tips here.  There are literally thousands of things you could try.

Your goal should be to strike a balance between paying off your mortgage early while still saving as much as possible in your tax-deferred accounts.  That way, by the time you are finally ready to pull the plug on working, you’ll have the double benefit of no longer having to make payments on your home while sitting on top of a substantially-sized nest egg.

Author bio: This article comes from Mr WM at My Wealth Manifesto, a money blog dedicated to taking a deeper look into all things personal finance.  Join us as we find new ways to pay down debt, save more cash, and build our way to financial independence.

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